Well, if you can’t see the road, there’s a problem in and of itself. Assuming good headlights, which I think you’d want in Iceland, and assuming modern road paints, it should work. If not, just stick a road light over it.
It should work, modern headlights are no joke, but I admit that I’m not sure. If you have enough light to perceive a broad range of colors it should work.
The shadows would appear wrong when lit by headlights, which might be a little bit disorienting. The shadows are rendered as if a light was high overhead.
I think the illusion would still work fine, but feel subtly "wrong" to the driver. Probably good enough to get people to slow down, though.
During the winter, it's about 5 hours of daylight. I recommend visiting there; it's absolutely beautiful during the sunrise/set, and you'd understand what I mean about it being a dark place.
I think the key fact you’re forgetting is that when it is dark in most places it is night time, which time is famous for having the fewest people driving. By contrast in the range of the polar night you could have rush-hour during what amounts to midnight in terms of ambient light. It’s really that simple.
